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Broad-based Growth; Margin Recovery; Europe Softness Tempers Recovery

TELX delivered a sequential improvement in Q2FY27, with revenue growing 2.3% QoQ in CC terms and EBITM expanding 70 bps to 19.7%, despite wage hike. Growth was broad-based, led by Media & Communications (+3.4%), HLS (+3.5%) and Transportation (+2.0%). The management expects H2FY27 to outperform H1, supported by deal ramp-ups and improving Healthcare visibility. However, weak Automotive demand in Europe and delayed deal conversions constrain near-term growth, while Aerospace & Defence programs remain 2–3 quarters away from meaningful contribution. Margin improvement should be gradual, driven by utilisation gains and workforce-pyramid correction. We maintain ‘ADD’ with an unchanged TP of INR 3,520, based on 22x average FY28–29E EPS. Stronger Transportation growth, European deal conversions and structural margin levers remain key catalysts

Revenue In Line; Margin Expands, PAT Misses on Low Other Income

* Revenue for Q2FY27 came in at INR 10.5 Bn, up 2.3% QoQ & 7.8% YoY in CC. In INR terms, revenue rose 3.4% QoQ and 15.0% YoY (vs CIE est. at INR 10.4 Bn).

* EBIT for Q2FY27 came in at INR 2.0 Bn, up 7.2% QoQ and 22.3% YoY (vs CIE est. at INR 2.0 Bn). EBIT margin was up 70 bps QoQ and 120 bps YoY to 19.7% (vs CIE est. at 19.2%).

* PAT for Q2FY27 stood at INR 1.7 Bn, flat QoQ but up 10.0% YoY (vs CIE est. at INR 1.8 Bn).

Segmental Growth Improves; European Automotive Headwinds Persist:

TELX reported 2.3% QoQ CC revenue growth, led by expansion across Transportation (+2.0%), Media & Comm. (+3.4%) and HLS (+3.5%). Media & Comm. benefited from sustained program ramp-ups and AI-led wins, including a GenAI-powered virtual assistant engagement with a global technology leader. Healthcare returned to growth, supported by a new product-engineering mandate from a global renalcare leader. Transportation secured a multi-year connected-vehicle program with a leading automotive OEM, alongside traction in aerospace, albeit on a small base. Geographically, the US and India performed well, while Europe remained soft due to its automotive exposure and delays in large OEM decisions. The management remains confident of sustaining growth in US and India and expects H2 to improve across key verticals. We expect gradual growth recovery, with sustained momentum contingent on deal execution and stabilisation in Europe.

Margin Expands to 19.7%; Operating Leverage and Pyramid Optimisation Hold Key:

EBITM expanded 70 bps QoQ to 19.7%, supported by 60–70 bps of cross-currency benefits, 10–20 bps from operating leverage and reversal of most one-off cost, despite wage hike. The management expects a gradual margin improvement through H2, driven by operating leverage and internal efficiency. Utilisation at 78% remains below the historical peak of 81–82%, while pyramid optimisation over the next two quarters offers further headroom. However, new engineering deals are not expected to drive material back-ended margin expansion. A shorter Q3, potential client furloughs and weak European demand pose risks. We expect company to close FY27 at 20.3% EBITM, on account of ramp-ups and execution of internal levers.

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